If you’re a Brit living in Australia and planning to retire here, your retirement income planning should include any UK State Pension you’re entitled to receive.
It’s a regular monthly income that’s guaranteed to be paid to you for the rest of your life. So, in that respect alone, it’s a valuable benefit.
Read on to discover seven key facts about the UK State Pension if you’re living in Australia when you start to take it.
1. Even if you’re living abroad, you’re entitled to claim it
Regardless of where you’re living in the world, when you reach your State Pension age (SPA), you’re entitled to take whatever State Pension you’ve accrued.
One thing to bear in mind is that, in recent years, changes have been made to the age you can start to receive it, and these changes may have occurred since you left the UK.
So, it’s worth checking what your SPA will be and factor that into your retirement income planning.
2. You have to claim it to get it
As is the case if you were still in the UK, your State Pension is not paid automatically to you when you reach your SPA. You have to actively take steps to claim it.
You’ll need to complete form IPC BR1 to claim your pension – which can be done up to four months before your SPA.
One benefit is that you can have your pension paid direct into your Australian bank account rather than have to pay currency exchange costs if you were to transfer it from a UK account.
As the UK government bulk-buys currencies for this purpose, you’re also likely to get a more favourable exchange rate than if you were changing money from sterling to Australian dollars.
3. The amount you get is based on your National Insurance contributions
The amount of State Pension you’re entitled to is based on your National Insurance contributions (NICs) during the time you were living and working in the UK.
From 6 April 2022, the maximum State Pension will be £185.15 a week or £9,627.80 a year. Based on a current Australian dollar to UK sterling exchange rate of £0.55, that means it’s worth around $17,505 a year.
A key point to note is that to get the full State Pension you need to have 35 qualifying years of NICs.
So, at the same time as checking when you’ll receive your pension, you should also check your State Pension forecast to see how much you’re entitled to.
4. Unlike if you’re living in the UK, it won’t increase in payment
One valuable benefit of the State Pension if you’re living in the UK is that it increases automatically in April each year.
However. such automatic increases do not apply if you are living in Australia. This means that the amount you receive at the outset will remain constant all the time you receive it. It also means that the real value of your State Pension will effectively decrease over time due to the impact of inflation.
Note that if you return to the UK once you’ve started taking your pension, the amount you receive will increase to the current amount you’d be entitled to had you not been living abroad.
5. You can top it up
By going onto the government website and checking your State Pension entitlement, you’ll have an idea of whether you want to pay extra voluntary contributions to top up the amount you’ll receive.
You can make additional contributions to top up your NICs history for a maximum of six previous years.
It’s clearly not a straightforward decision as you’ll need to balance the cost of the contributions you’ll make, and additional pension you’ll receive at outset, against the fact that the amount of pension you will receive will not increase above that figure.
So we would suggest you get professional advice before deciding whether to top up.
6. You’ll pay tax on the State Pension you receive
If you live permanently in Australia, your State Pension income will be taxed alongside other Australian earnings. The UK and Australia have a double-taxation agreement to facilitate this.
If, however, you do still spend part of each year in the UK, your State Pension will be subject to tax there.
7. You can defer taking it and increase your pension amount
As well as topping-up your State Pension, you can also increase the ultimate amount you’ll receive by deferring it for a period of time.
You can defer your State Pension for as long as you want. For every nine weeks you defer taking it, it increases by 1%. By deferring for a year, for example, it will increase by almost 5.8%.
Again, the decision to defer or not will be dependent on your own individual circumstances.
You may feel that deferring it – especially if you have other sources of income – may be a good idea, especially as the amount you’ll receive will also go up each year in line with the criteria around State Pension increases. This will be in addition to the deferral enhancement.
However, you’ll be missing out on annual income that will take some time to make up with the deferred increase.
As with the decision of whether to top up, we would recommend that you speak to your financial adviser about this.
More information
This article is for information only. If you have any queries about your state pension, we suggest you contact the Department for Work and Pensions via International Pension Centre – GOV.UK (www.gov.uk)
If you have any queries regarding your retirement arrangements more broadly, then please get in touch with us.
